Over What Period of Time Is the Liquidity-Preference Theory Most

question 54

Multiple Choice

Over what period of time is the liquidity-preference theory most relevant, and what does it suppose?

• A) short run; it supposes that the price level adjusts to bring money supply and money demand into balance
• B) short run; it supposes that the interest rate adjusts to bring money supply and money demand into balance
• C) long run; it supposes that the price level adjusts to bring money supply and money demand into balance
• D) long run; it supposes that the interest rate adjusts to bring money supply and money demand into balance

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Definitions:

Disparity of Income

The gap in income and wealth distribution among individuals or groups within a society, leading to economic inequality.

Nominal Wages

The amount of money paid to employees without adjustment for inflation, reflecting the face value rather than the real purchasing power.

Real Wages

The buying capacity of earnings, when accounted for inflation, showing the amount of goods and services that can be purchased.

CPI

The Consumer Price Index is an indicator that calculates the overall average prices of a selection of consumer items and services, including food, transportation, and healthcare, which is utilized to measure inflation.